Now Honda and BMW halt sales after car finance meltdown as buyers are told by dealers not to pick up vehicles

Car manufacturers are suspending deliveries of new vehicles in Britain following a bombshell court ruling banning car dealers from earning ‘secret’ commission on vehicle sales.

Honda and BMW ordered showrooms not to deliver vehicles that were set to be purchased on finance – after judges ruled dealers must declare any bonus they get for setting up the deals.

The Court of Appeal ruling appeared to tear up Financial Conduct Authority (FCA) rules, which previously said car salespeople need only declare the commission they get on finance if they are asked.

And it comes hot on the heels of a finance scandal that has been branded the ‘next PPI’ after the payment protection scandal that cost banks an estimated £50billion – which directly tied commission to the interest rate charged to motorists.

Lenders including Close Brothers, Honda Financial Services and Zopa closed their books to new business following the ruling but dealerships are now arranging for deliveries after revising their paperwork to comply with the judgment.

Car buyers say their vehicle deals have been put on hold as dealerships scramble to ensure their finance agreements comply with the law

Honda temporarily suspended deliveries after the Court of Appeal judgement was issued (Honda Civics lined up in Southampton Docks, pictured)

Honda temporarily suspended deliveries after the Court of Appeal judgement was issued (Honda Civics lined up in Southampton Docks, pictured)

BMW also ordered dealerships to stop selling cars that had been bought on finance until it could ensure paperwork complied with the ruling

BMW also ordered dealerships to stop selling cars that had been bought on finance until it could ensure paperwork complied with the ruling

Car buyer Caitlin told MailOnline how an Arnold Clark garage in Fife, Scotland (pictured) suspended her car purchase because it needed to rewrite the finance agreement
Car buyer Caitlin told MailOnline how an Arnold Clark garage in Fife, Scotland (pictured) suspended her car purchase because it needed to rewrite the finance agreement

Both Honda and BMW told The Telegraph they had temporarily halted handing over keys to buyers – but both have since resumed sales.

A spokesman for Honda said on Thursday: ‘Following (the) Court of Appeal judgement, Honda Financial Services took the decision to pause funding finance business in order to assess this ruling.

‘We have now had time to review the situation and have been able to put in place interim measures to allow us to resume the funding of all finance business.’

One buyer who spoke to MailOnline today revealed how she had taken the day off from work to buy a nearly-new Mazda hatchback from a big-name dealership – only to go home empty-handed because the paperwork had to be redone.

Caitlin, 32, from Bathgate in West Lothian, spotted the two-year-old car at Arnold Clark in Fife last week and secured a reservation to see the car – and drive it away – on Wednesday.

‘I thought to myself, ‘I want this car,’ and they said I could buy it on a hire purchase agreement,’ she said.

‘I thought it was all alright but then they phoned me on Monday and said, ‘actually, it’s not alright, this car finance thing that’s just come out means we have to put a red light on all cars with finance.”

Caitlin was only able to see the car and test drive it on Wednesday – but could not sign any paperwork for the finance agreement because it wasn’t ready.

She added: ‘I don’t like car salesmen already. They need to do their jobs but my personality type just can’t deal with them.’

Finance expert Martin Lewis has advised anyone who bought a car on finance prior to January 28 2021 to look over the paperwork of their finance deal – because they could be due compensation.

Caitlin said she had at least two finance deals predating that time she would be investigating – with compensation of up to £1,100 each potentially awaiting if the firms are found to have mis-sold her finance.

‘I’ve been looking at Martin Lewis so I’m going to see if I can do anything about these two other finance contracts – he was saying it’s up to £1,100 each,’ she added.

She has since received a call from the dealership selling her the Mazda to say she should be able to pick up the car before the end of the week after it finished revising its paperwork.

The ‘discretionary commission arrangements’ (DCAs) saw commission directly tied to the interest being paid on finance

The ‘discretionary commission arrangements’ (DCAs) saw commission directly tied to the interest being paid on finance

The Court of Appeal (based at the Royal Courts of Justice, pictured)

The Court of Appeal (based at the Royal Courts of Justice, pictured)

An Arnold Clark spokesperson said: ‘Arnold Clark, along with the rest of the automotive industry, is aware of the wide-reaching impacts of the recent judgement from the Court of Appeal on the motor finance test case, which we fully expect to be reviewed by the Supreme Court in due course.

‘As the Court of Appeal judgement has gone a lot further than the current FCA rules and guidance, we await full guidance from the Financial Conduct Authority as a result of this judgement.

‘In the meantime, we have updated our customer finance documentation to be in line with the recent court case and we are continuing to trade as normal, giving our customers consistency and access to motor finance should they wish to use this to purchase their vehicles.’

Other car buyers have found their purchases suddenly frozen as dealers and lenders figure out whether the deals that have been signed are legal.

One purchaser told MailOnline: ‘Our offer fell over on Tuesday when (lender) Alphera pulled all offers. Awaiting new offer from them or others now – our car is sitting in the garage currently.’

There are concerns that people will not be able to access car finance in the wake of the bombshell judgement
There are concerns that people will not be able to access car finance in the wake of the bombshell judgement

Nikhil Rathi, chief executive of the Financial Conduct Authority, has urged car lenders to engage with the watchdog

Nikhil Rathi, chief executive of the Financial Conduct Authority, has urged car lenders to engage with the watchdog

Close Brothers, one of the firms at the centre of the Court of Appeal case, has suspended new car loans

Close Brothers, one of the firms at the centre of the Court of Appeal case, has suspended new car loans

Last week, three drivers won their case against two lenders after they discovered the dealers had been paid commission for referring them to moneylenders – a ‘secret’ practice, the Court of Appeal ruled, that could not continue.

The judgement has rattled both the new and used car sectors with some ‘captive finance’ services, directly offered by manufacturers such as Honda, suspending new loans.

The Society of Motor Manufacturers and Traders said today: ‘Manufacturers take their compliance responsibilities seriously and are assessing, with their finance providers, the implications of the judgment in order to ensure correct procedures are followed as a result. Any pause to operations is expected to be temporary.’

Sue Robison, CEO of car dealer industry body NFDA, has urged caution, saying: ‘It is important to emphasise that the present judgement will take time to digest, so drawing firm conclusions at this stage would be premature.’

Martin Lewis says motorists could be in line for one of the biggest payouts in UK history after more than one million complaints are submitted over car finance
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The Court of Appeal ruled in favour of three car buyers after they separately took FirstRand Bank – trading as Motonovo – and Close Brothers to court in cases that were later merged.

The buyers, who were all on low incomes, successfully argued that they did not consent to paying the dealers a commission that could affect their finance payments because they were not properly informed that this would happen.

Lady Justice Andrews, and Lords Justices Birss & Edis ruled that there was ‘no dispute’ that the commission was ‘kept secret’ from one claimant – and that the others were not explicitly told a commission would be paid.

Some of the commission was even linked to interest levied on the loan; known as ‘discretionary commission arrangements’ (DCAs) or ‘difference in charge’ (DIC) deals, these were outlawed by the Financial Conduct Authority (FCA) in January 2021.

The judges concluded that car dealerships could only lawfully receive commission from lenders if they received the customer’s ‘fully informed consent’ – which, it found, was not always being sought before a deal was signed.

Analysts and lawyers have suggested the backlash following the ruling could see consumers paid billions in compensation.

Stephen Haddrill, director general of the Finance Leasing Association, said last Friday’s judgement was ‘significant and unexpected’ and would have consequences ‘which stretch far beyond the motor finance sector’.

Shares in Close Brothers tumbled as it suspended new loans and warned that that it could face ‘significant liabilities’ as a result of the judgement, while Lloyds Banking Group, a major car financier, is setting aside millions in expected compensation.

Both Close Brothers and FirstRand are appealing the ruling.

And on Tuesday, car finance firms met with the FCA to discuss next steps amid fears some firms could stop offering finance altogether.

Nikhil Rathi, chief executive of the FCA, told a dinner event on Tuesday: ‘Our focus is on ensuring that customers receive fair treatment in line with the law and that the market for motor finance continues to function well, recognising that over two million people rely on it each year to buy a car.

‘We are encouraging firms to engage with us as they consider the impact the Court judgment has on their products and services, and we are grateful for the way firms have acted responsibly so far.’